Bank fee-based shocks and the U.S. business cycle

Christian Calmès and Raymond Théoret

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: Efficient liquidity matching requires from banks to track external shocks (e.g., GDP growth shocks, stock market shocks and monetary policy shocks) in order to optimally allocate their assets between loans and other business lines. Profit maximizing banks have to rebalance their product-mix to take advantage of these changes. However, even though banking is cyclical, and contemporaneously reacts to shocks outside the banking sphere, there may also be some feedback effects at play, whereby bank changes, in turn, could affect economic and financial conditions. Generalizing the results of Marcucci and Quagliariello (2006, 2009), who indeed find an asymmetric impact of credit shocks on economic and financial time series in recession, we use a similar VAR framework to show that an even stronger feedback effect is prevalent for fee-based shocks. If the feedback effects of credit and fee-based shocks might have been both at play before the subprime crisis, the feedback effect of credit shocks seems to have faded away during the subprime crisis, whereas the feedback effect stemming from fee-based shocks has gained further strength.

Keywords: Universal banking; Banking cycle; VAR; Feedback effects; Procyclicality; Smooth transition VAR (STVAR) (search for similar items in EconPapers)
JEL-codes: C32 G20 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940817303595

DOI: 10.1016/j.najef.2018.09.002

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